Don't expect a big lift in super fund returns - or long awaited super reforms - any time soon.
How the superannuation industry is heading into another challenging year as it faces the prospect of yet more rule changes. At the same time, the struggles of most super funds to recapture the confidence of their members are likely to continue.
The global financial crisis took a harsh toll on super funds' investment returns and confidence has remained shaky ever since. The fragile state of major industrial economies means the likelihood of a big lift in returns in 2011 - and so a recovery in confidence - is modest at best.
"The low returns being generated by super funds, even over the longer term, have really hurt the industry," says Alex Dunnin, director of research at Rainmaker Information.
"For many people super is starting to look like a low-return savings vehicle rather than one where it makes sense to put more money in the hope of getting strong investment gains."
This assessment reflects the fact that, based on SuperRatings figures, mainstream diversified super funds have returned a very modest 4 percent to 5 percent a year over the past decade, about the same as that generated by cash investments.
If this is all you are likely to get, the reasoning goes, the better option may be to direct your compulsory super contributions to a low-cost, low-risk investment option that invests your money in cash and bonds, and then use your surplus cash flow to finance geared investments outside super.
"Super has valuable tax concessions but if the returns are no good the tax breaks won't be enough to re-establish its appeal," says Dunnin.
As noted, the task of trying to win back the confidence of Australian investors isn't the only challenge facing the super industry in 2011. It also has to deal with ongoing regulatory uncertainty.
This is being generated by the debate over the recommendations of the so-called Cooper review, particularly its MySuper proposal, doubts about whether the Labor government will have the numbers in parliament to deliver its promised superannuation reforms, and the possibility that the government's proposed tax summit will impact adversely on super.
In the case of the MySuper proposal, this recommends all super funds having to offer a simple, low-cost fund as their default investment option. About 80 percent of employees are in their super fund's default option - the option you use if you don't nominate an alternative.
"MySuper will cost a lot to implement, assumes one size fits all and is quite possibly overkill," says Jeff Bresnahan, head of SuperRatings.
Warren Chant, head of rival superannuation research group Chant West, is also critical of MySuper, arguing that it should be rejected.
In his view it will have the unintended consequence of putting pressure on super funds to adopt a very conservative investment approach, in the process removing the prospect of members reaping above average returns over the long term. Pauline Vamos, the chief executive of the Association of Superannuation Funds of Australia, also questions some of the Cooper recommendations, although she supports the implementation of its SuperStream proposals for boosting super's administrative efficiency.
In the case of MySuper, Vamos points out it is not due to take effect for several years and, in any case, will be the subject of more consultation between the government and the industry.
In this connection she has moved quickly to initiate discussions with new Minister for Financial Services and Superannuation Bill Shorten.
"It is great to have a minister who is familiar with superannuation," she says, adding that she also welcomes the appointment of the new shadow minister for superannuation, Senator Mathias Cormann.
Given all these changes it is hardly surprising that the industry has been struggling to develop effective strategies for future growth - other than, as usual, relying on the steady flow of funds generated by compulsory employer super contributions.
Ironically, perhaps the main positive at the moment is the likelihood that the close election result will put a brake on the ability of the government to make sudden and unexpected changes to super in the next few years.
In addition, super doesn't appear to be a major focus of policymakers at present, a point John Edstein, a partner with leading law firm Mallesons Stephen Jaques makes.
"In the agreements between the government and each of Mr Windsor and Mr Oakeshott, Mr Wilkie and the Greens, there is no specific mention of superannuation," he says.
"This would suggest either that superannuation is not high on the agendas of the independents and the Greens, or that they are comfortable to generally continue with the government's policy direction."
The main superannuation policy put forward publicly by the Greens is a proposal to include compulsory super contributions as part of parental leave payments.
This may well be accepted by the government in return for the Greens' support for Labor's own superannuation proposals. These are an increase in the compulsory super contributions from 9 percent to 12 percent a year, a tax rebate on super contributions for those earning less than $37,000, a lift in the eligibility age for compulsory super contributions - from 70 to 75 - and the extension of the rule allowing those 50 and over to make concessional (that is, tax effective) super contributions provided they have no more than $500,000 accumulated in super.
While the opposition rejects the first, second and fourth proposal, it is likely all will be enacted once the Greens have the balance of power in the Senate from July 1.
The main proviso is that the government is able to get its proposed mining tax through parliament, since without it the tax revenue won't be available to pay for Labor's key superannuation reforms.
But even if these reforms are passed, none will have an immediate impact in 2011, with the proposed higher SG contributions being phased in from 2013-14 to 2019-20, the second and fourth proposals due to start in 2012-13, and the third from July 2013.
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